Wed, 18 Oct 2000

Average CAR of seven recapitalized banks falls

JAKARTA (JP): The average capital adequacy ratio (CAR) of seven recapitalized banks declined to 11.04 percent at the end of August from 11.18 percent in July, the Indonesian Bank Restructuring Agency (IBRA) said in its October monthly-report issued on Tuesday.

The seven recapitalized banks are the publicly listed Bank Internasional Indonesia, Lippo Bank, and Bank Universal, and non- listed Bank Arthamedia, Bank Prima Express, Bank Bukopin and Bank Patriot.

The agency did not disclose the reason for the decline in the CAR, but analysts have warned that the capital condition of the banks would deteriorate further as most of the banks are still unable to resume their lending activities.

CAR is the ratio between capital and risk weighted assets.

The government via IBRA, a unit under the finance ministry, helped to fund the recapitalization program of the seven privately-owned banks in 1998 to lift the banks' CAR level from negative territory to beyond the minimum 4 percent requirement. Instead of injecting cash, the government issued bonds to recapitalize the banks.

The seven recapitalized banks are different from the so-called nationalized banks because all of the recapitalization costs of the latter are fully financed by the government.

The government has said that all of the country's banks must reach a minimum CAR level of 8 percent by the end of next year, to meet the international standard.

IBRA said that the non-performing loans (NPLs) of the seven recapitalized banks declined to 22.63 percent at the end of August from 23.73 percent in July.

The government has also said that banks' NPLs must fall to below 5 percent by the end of next year.

The agency said that the lending growth rate during the month was only 1.74 percent compared to 2.47 percent in July.

But it said that the loan to deposit ratio (LDR) increased slightly to 45.76 percent from 44.97 percent.

Bank Indonesia confirmed last week that lending growth of the banking sector had been slow due to a combination of internal and external problems in the banking sector.

The central bank said that new lending in August was only at Rp 267.61 trillion compared to the Rp 525.40 trillion in total third party funds it collected.

IBRA also said that the net interest margin of the seven banks declined to 0.28 percent from 0.31 percent, while the return on assets was at 0.03 percent and the return on equity at 0.16 percent.

The government has issued more than Rp 400 trillion worth of bonds to finance the recapitalization of state and major private banks. The state budget covers the interest rate of the bonds.

More than Rp 150 trillion of the bonds carry fixed interest rates of 12 percent and 14 percent. Another Rp 218 trillion of the bonds carry a variable rate linked to the interest rate of the one-month Bank Indonesia SBI promissory notes. The remaining amount of the bonds are indexed rate bonds.(rei)